Federal health officials this week trumpeted progress in negotiating lower Medicare drug prices as big pharmaceutical companies faced another legal loss in their efforts to have the negotiations ruled unconstitutional.
This week, the Department of Health and Human Services announced that it had received the first counteroffers from pharmaceutical makers for all 10 drugs up for price negotiation. The negotiations—a provision in the Inflation Reduction Act of 2022—kicked off late last year with the Centers for Medicare and Medicaid Services (CMS) announcing the 10 drugs selected for bargaining. Those 10 drugs have seen significant price hikes over recent years and, combined, cost Medicare $50.5 billion in gross during 2022, with an additional $3.4 billion in out-of-pocket costs for patients. The health department sent its opening pricing offers to drug makers on February 1.
“We are committed to constructive dialogue and are glad the drug companies are coming to the table,” HHS Secretary Xavier Becerra said in a statement. “These are good-faith, up front negotiations,” he said, which will “keep money in the pockets of millions of Americans instead of Big Pharma.”
CMS Administrator Chiquita Brooks-LaSure called the receipt of counteroffers “another negotiation milestone.”
But while the big pharmaceutical companies are at the bargaining table, they’re also in the courts trying to get judges to strike down the negotiations as unconstitutional. The pharmaceutical industry has filed at least nine lawsuits around the country challenging the negotiations. So far, it’s not going well.
Last month, a federal judge in Texas dismissed a lawsuit brought in part by the heavy-hitting pharmaceutical trade group PhRMA. US District Judge David Ezra in Austin ruled that the court lacked jurisdiction for the case because the plaintiffs’ claims must first go through an internal review process with the CMS, as required by the Medicare Act.
And last week, a federal judge in Delaware dismissed a similar case brought by AstraZeneca—though for different reasons. In his 47-page ruling, US District Judge Colm Connolly provided a biting critique of AstraZeneca’s claims that the negotiations injure the company and violate its Fifth Amendment right to prevent the government from depriving it of property without due process.
Incoherent arguments
According to Connolly, AstraZeneca’s claims were nonsensical failures. AstraZeneca is one of the drugmakers currently negotiating with Medicare. The negotiations are over the price of its drug Farxiga, used to treat diabetes, heart disease, and chronic kidney disease. It’s used by nearly 800,000 people on Medicare and cost the program nearly $3.3 billion between June 2022 and May 2023. But the company filed its lawsuit before the health department announced which drugs would be subject to price negotiations, which are ongoing. In its written complaint, AstraZeneca claimed without explanation that the negotiations would injure the company, including negatively affecting its patent rights. But in oral arguments “its counsel was unable to articulate a coherent theory of why or how” that would be the case, Connolly wrote. Overall, the company “failed to identify a cognizable injury-in-fact,” he wrote.
Connolly also cut down AstraZeneca’s Fifth Amendment claim, noting that the company has no legal obligation to sell its drugs to the government and is not entitled to any specific payment. AstraZeneca is “free to accept or reject” participating in Medicare, Connolly noted. Thus, negotiating prices for a program in which it voluntarily participates is not equivalent to a “gun to the head,” as AstraZeneca put it.
“Understandably, drug manufacturers like AstraZeneca don’t like the IRA [Inflation Reduction Act]. Lower prices mean lower profits,” Connolly wrote. “But AstraZeneca’s ‘desire’ or even ‘expectation’ to sell its drugs to the Government at the higher prices it once enjoyed does not create a protected property interest. And because AstraZeneca has no legitimate claim of entitlement to sell its drugs to the Government at any price other than what the Government is willing to pay, its due process claim fails as a matter of law.”
In a statement to CNBC, AstraZeneca said it was “disappointed with the court’s decision and the potential negative impact it will have on patients’ access to future life-saving medicines.” It added that it is evaluating its path forward.
Connolly’s ruling is similar to one from September, when US District Judge Michael Newman in Dayton, Ohio, rejected the same argument in a similar case brought by the business lobbying group, the US Chamber of Commerce.
“As there is no constitutional right (or requirement) to engage in business with the government, the consequences of that participation cannot be considered a constitutional violation,” he wrote.
At the time, the ruling allowed for Medicare price negotiations to proceed, but Newman did not dismiss the case entirely, which is ongoing. Last month, the health department filed a motion for dismissal, and this week filed a notice of the ruling in AstraZeneca’s case.
Meanwhile, Medicare price negotiations continue. The health department said that it will continue to negotiate in the coming months. If the government and the drug makers come to an agreement on prices, those prices will be announced on September 1, 2024, and will take effect at the beginning of 2026.
